The parent company of Saks Off 5th confirmed Thursday that it will close its department store on Nicollet Mall next January.

A Saks store, and then its discount offshoot, have anchored Gaviidae Common I at 655 Nicollet Mall for 25 years. But the store's fate was sealed when Canadian retailer Hudson's Bay Co. bought Saks Inc. in 2013, according to company spokeswoman Tiffany Bourré, who noted, "We are actively looking for opportunities [elsewhere] to reopen a location in downtown Minneapolis."

The impending retail shake-up downtown comes as the city prepares for a $50 million overhaul of its commercial spine, and as a slew of new residents are anticipated to move into new luxury housing two blocks from the store. Later this summer, the $100 million, 253-unit Nic on Fifth residential tower is expected to open, and more residential units and office developments are planned for the same block or nearby.

"It's unfortunate that Saks chose to leave at a time when downtown is at the cusp of such a resurgence and so many businesses are choosing to invest," said Minneapolis Mayor Betsy Hodges, noting that the number of downtown residents just reached the 37,000 mark.

Nicollet Mall has been home to several department stores — from Powers to Dayton's — for more than a century, but once Saks Off 5th closes, only Macy's will remain. The exiting store was Saks Fifth Avenue when it debuted, but then switched to the smaller value-oriented concept in 2005 after years of sluggish sales.

"It's always disappointing to lose a downtown retailer," said Steve ­Cramer, president and CEO of the Minneapolis Downtown Council, a business group promoting the city's core. "As the new Nicollet Mall is built, this will be a premier location. I think the community has a right to expect new retail development there worthy of this prime territory downtown."

JIM GEHRZ &#x2022; jgehrz@startribune.com

Some reports speculate that the Saks Off Fifth on Nicollet Mall will be converted into a “flagship” Walgreens store.

The state Legislature just approved $21.5 million in bonding funds to offset the $50 million price tag for a planned overhaul of Nicollet Mall. Much of the remaining amount will likely be raised by an assessment on commercial property owners. The city has hired James Corner, a well-known New York landscape architect, who has crafted a plan to give the mall a more pedestrian-friendly "woodsy" feel. Work on the mall is expected to begin in the summer of 2015.

"Between that redevelopment and the additional projects like Target Center renovation, Mayo Clinic Square [at Block E] and the Washington Avenue reconstruction, there are many businesses that think now is the opportune time for investment," Hodges said. "That growth in investment is good for businesses, the bottom line and for residents."

Representatives from New York-based David Werner Real Estate, which bought Gaviidae Common I for $26.5 million last year, could not be reached for comment Thursday.

'Not necessarily a bad thing'

City Councilman Jacob Frey, whose district includes Gaviidae Common I and II, said the news is "not necessarily a bad thing, not that there's anything wrong with Saks, but the retail model has changed to more of a boutique model instead of ­gigantic stores."

When asked about a Minneapolis/St. Paul Business Journal report that said United Properties is interested in buying the Saks space and converting it to an upscale Walgreens store, a spokeswoman for Bloomington-based United Properties declined to comment.

"United Properties continues to be very interested in development in and around downtown Minneapolis," said spokeswoman Jessie Timmerman. "We've invested in several projects and are open to more, since we see this as a vibrant, ever-evolving area."

A spokesman for the Deerfield, Ill.-based drugstore retailer demurred when asked about future plans along the mall. "I have no information about a store in the location in Nicollet Mall," said Phil Caruso in an e-mail. Walgreens already has a store at 815 Nicollet Mall.

Caruso said Walgreens currently has 13 "flagship" stores throughout the country, with a 14th scheduled to open this summer in Chicago's historic Wrigley Building. USA Today has described the stores as "a cross between a Target and Sephora" with "self-serve froyo [yogurt], sushi, a juice bar, beauty advisers and manicure and brow-shaping stations."

United Properties bought the shuttered Neiman Marcus store in Gaviidae Common II at 5th Street and Nicollet Mall last year for $5.5 million, and subsequently sold it to CenterPoint Energy Inc. The 100,000-square-foot building will become the Houston-based natural gas utility's main downtown location after it is remodeled. More than 300 CenterPoint employees are expected to move into the new quarters, probably in the first quarter of 2015.

The Meet Minneapolis, Convention & Visitors Association will have a new Visitor Information Center in the building, as well.

Environmental Protection Agency officials say the federal agency's tests have discovered elevated levels of lead in drinking water in a northwestern Indiana city where contamination already has forced some residents to move.